Spreads On The Rise, Risk For Mortgage Rates?

In these days the political tensions linked to the formation of the new government are creating a certain instability on the markets, with the Italian stock market often falling also compared to the main European markets and above all with the BTP-Bund spread in notable increase. Is it a situation of potential danger for families that have an existing mortgage, perhaps at a variable rate? Can the Euribor forecasts be affected? What impact could there be on Eurirs and fixed-rate mortgages ?

It is what we will try to analyze without falling into an excessive pessimism linked to the turbulence of these days.

The formation of the new Government and the increase in Spread

As is well known, the complicated definition of the new Government is underway in our country, which is very complex in light of the results of the last elections and with the risk, if an agreement cannot be reached, of returning to the polls. But in these days the turbulence of the markets (in particular Italian) seems to be more tied to the program and to the “protagonists” of the government in the process of definition, rather than the risk of remaining without them.

The program that is the subject of the so-called “Government contract” between the 5-Star League and Movement, in fact, seems to have several elements that make hair stand on the head of many supporters of strict compliance with EU policies. To put it another way, there is no doubt that the unprecedented coalition that should support the new government, as the “contract” itself seems to confirm, has a high chance of raising the tone of the clash between Italy and the European Union. This cannot go unnoticed on the markets, as shown by the spread spread between the German BTP and Bund. In fact, the spread should somehow reflect the confidence of the markets in Italian solvency regarding the debt contracted through the issuance of government bonds, and evidently an anti-European policy does not help in this regard.

Could there be impacts on the performance of Euribor and Eurirs and, consequently, on mortgage rates in Italy?

A question that many people ask themselves, especially those who have a mortgage, is whether they can change the forecasts on the performance of Euribor and Eurirs and whether, consequently, there may be repercussions on mortgage payments , in the short or medium term

For fixed-rate mortgages the problem should not arise. By definition, the interest rate, and therefore the installment, is constant over time.

Also read: The Eurirs forecasts for fixed-rate mortgages

For variable-rate loans, the Euribor trend forecasts are fundamental. This is in fact the indicator able to influence the interest rate of many variable rate mortgages in Italy, being indexed to this in most cases. The Euribor however is defined on the average of the interbank rates of the main European banks, it is not tied only to the destiny of Italy (we would dare to say for our luck, in this case). The impact on the Euribor could therefore only be indirectly, given for example future decisions of the ECB induced by changed scenarios within the European Union, but which at the moment would be quite risky to predict. And in fact in these days, as we have said, if the spread seems in noticeable “movement”, there are no particular turbulence on the Euribor trend

The possible impacts for new mortgages

The situation for the Italian mortgage market and for those who, in the coming months, will find themselves in the need of having to ask for one, may be slightly different. In fact the increase in the spread between German BTPs and Bunds could have an impact on the strategies of Italian banks.

In fact, a higher BTP / Bund spread has the double effect of decreasing the value of government bonds held (and Italian banks, of course, are in the forefront on this point) and of increasing the coupons of future ones. Italian banks could therefore find the recruitment of new customers on mortgages less convenient than now. This generally translates into an increase in another ” spread “, the one applied by the banks on the mortgages themselves. In fact, we remind you that the interest rate of a variable rate mortgage is generally given by the sum of the Euribor and a spread defined by the bank. Similarly, for fixed-rate loans, with the Eurirs instead of the Euribor.

The spread applied by banks to mortgages is therefore a very important lever to stimulate or not the acquisition of new customers on the financing market, and it is what, at least in theory, could lead to a lower convenience for mortgages to be opened in the medium term.

Certainly it is not the case to reach hasty conclusions, but these will be the main phenomena to be monitored in the coming weeks.